Nasdaq OMX hit by five-year low in US equity trading

 Fees earned by Nasdaq OMX from its equities business fell year on year by one-third, as a five-year low in trading of US stocks forced the transatlantic exchange operator to turn to other markets for revenues.

The exchange group today reported that net revenues from equities trading fell to $47m in the third quarter of this year, down by 30% from the same period last year, when it made $67m. The drop came on the back of US average daily trading volume at the exchange falling to a five-year low of six billion, which was down 32% from 8.8 billion in the same period year last year.

Revenues from its Nordic equities business – which includes its stock exchanges in Sweden, Finland, Denmark and Iceland – were also hit. Equities revenues in the Nordics were down 25% from $24m to $18m year-on-year in the third quarter. As Financial News reported last week, Nasdaq OMX’s market share in the Nordic region has slipped as it faces increased competition from rivals.

Bob Greifeld, chief executive of Nasdaq, said on the results call that volumes in the third quarter of last year had been higher than normal due to the eurozone crisis and the US discussions over the debt ceiling.

Lee Shavel, the chief financial officer, also said on the call that trading remained challenging and indications from October are that fourth quarter average daily volumes were likely to remain at six billion. “In the longer term, volumes show promise as the economy grows and rising consumer confidence will lead to more spending and flows into risk assets and equity mutual funds,” he said.

Greifeld also said that Nasdaq relied less on trading for revenues in the third quarter, with the exchange earning 71% of its total revenues from subscription and recurring fees, which increased $5m year-on-year to $290m.

Richard Repetto, an analyst at Sandler O'Neill, said in a report: "The lower percentage of "falling" transaction revenues gives Nasdaq's earnings more stability than its publicly traded US exchange peers, who all have a higher dependence on trading volumes and revenue."

Overall, revenues at Nasdaq OMX in the third quarter were 6% down on a year on year basis from $436 to $409m. Net profits were $105m in the third quarter of this year, 13% lower than the $121m made in the third quarter of 2011.

Among the exchange’s new initiatives, Greifeld highlighted the launch of a global equity family of indexes in the fourth quarter.

He said: “Vanguard recently announced its switch from MSCI to FTSE to save costs and we applaud them. We are entering a new era for providers of exchange-traded funds which plays to our strengths in calculating indexes.”

Other new products include FinQloud, a venture with Amazon, to allow brokers to store data required by regulators for many years and the delivery of wireless market data.

Greifeld said: “FinQloud will reduce storage costs for brokers by 80% and we are looking at other ways to reduce infrastructure for our clients.”

Analysts asked Greifeld how possible regulations on high-frequency trading would impact Nasdaq.

Greifeld said Nasdaq defined high-frequency trading as proprietary, low latency with the client’s server in the exchange’s data centre, an average order life of less than one second and high order-to-trade ratio of 100 and no market making obligations.

He said: “They give us $50m in revenue and are a customer base we care about as they add liquidity. They want to step up into a market making role which is what we need as liquidity has never been greater and spreads have never been narrower in actively traded stocks, but as you walk down the market cap scale too many public companies do not have market makers.”